Covid 19 – what comes next for the residential property market

With the first quarter of 2020 (Q1 20) ending only five days into the COVID-19 national lockdown, the statistics and trends analysis released by ooba home loansdepicted an ideal environment for homebuyers. During Q1 20, bank home loan approval rates on 100% finance applications were at levels last seen more than 12 years ago. The Average Purchase Price dropped by 0.6% year-on-year compared to Q1 2019, making acquiring a new home more affordable in the prevailing low-interest-rate environment.

Rhys Dyer, CEO of ooba, says: “Over the past few quarters, banks were more inclined to offer affordable and accessible credit. ooba’s approval rate in Q1 20 increased by a further 1.8% since the first quarter of 2019, with over 83% of our homebuyers successfully securing a home loan. The approval rate on applications looking for a 100% loan soared to 82.9% in Q1 20. During Q1 20 an unprecedented 61% of all applications received by ooba were for 100% finance, up over 7% from Q1 19’s 57%. Banks have been steadily reducing their deposit requirements, while at the same time reducing their interest rates as they aggressively compete for a larger share of the home loan market.”

Dyer says: “Our optimistic outlook in Q1 for market conditions for the rest of 2020 is now tempered with significant uncertainty as we wait for the COVID-19 lockdown to end and to understand how quickly the property market can get back to “business as usual”. In just a few weeks of April, we have seen unprecedented financial distress, with many South Africans facing job uncertainty and potential business failure and the economy likely to shrink significantly over the remainder of the year.”

Says Dyer: “However, whilst there will be some challenging times ahead for consumers, we don’t believe that the outlook for property is all doom and gloom. The prime rate of interest is at the lowest level it has been since 1973, with the prospect of potential further rate cuts. For first time homebuyers, the cost of renting versus buying is now swinging very much in favour of buying, especially for properties below R1m, where there is no transfer duty applicable. There are likely to be attractive deals in the market as sellers who have been holding on for some time to sell their properties are forced to reduce prices, which should bolster demand in the property industry.

Given the complexities facing buyers in the year ahead, using a home loan comparison service is more critical than ever before. Prospective homeowners can use these services to shop around for the most competitive home loan from the major lenders. By obtaining a home loan pre-qualification potential buyers will have a clear indication of their credit score and credit profile, as well as a certificate outlining the house price range they can afford.

“By pre-qualifying, prospective homebuyers can confidently make an accurate price offer on their dream property knowing that obtaining bond finance is a mere formality,” concludes Dyer.

With interest rates being at a 50-year low, many South Africans might be contemplating whether now is the time to fix the interest rate on their home loan. Before going ahead with this decision, Adrian Goslett, Regional Director and CEO of REMAX of Southern Africa, strongly recommends that buyers carefully consider the various implications of this decision to ensure that they do not later come to regret it.